At the beginning of every month, I use Dave Fish's CCC list to search for stocks trading at a discount to fair value. This year, in an effort to balance my portfolio holdings across all 10 sectors in my watch list, I search for the best available candidates by sector. Until DivGro is nicely balanced, I'll continue to bias purchases to sectors that are under-represented, but only if I can identify candidates with good dividend yields and strong dividend growth rates trading at a discount to fair value.
The following stocks are the sector winners for August:
| Helmerich & Payne Inc. (HP) • rank 1 | (*******) | Energy |
| NEW Deere & Company (DE) • rank 3 | (*******) | Industrials |
| NEW Qualcomm Inc. (QCOM) • rank 5 | (*******) | Information Technology |
| NEW Sturm Ruger & Company Inc (RGR) • rank 6 | (*******) | Consumer Discretionary |
| Horace Mann Educators Corp. (HMN) • rank 7 | (*******) | Financials |
| BHP Billiton Ltd. (BHP) • rank 9 | (*******) | Materials |
| NEW Philip Morris International (PM) • rank 10 | (*******) | Consumer Staples |
| NEW Wisconsin Energy (WEC) • rank 14 | (*******) | Utilities |
| Owens & Minor Inc. (OMI) • rank 15 | (*******) | Health Care |
| BCE Inc. (BCE) • rank 20 | (*******) | Telecommunication Services |
HP repeats in the top spot for a third time in a row. BHP has been on the list for 7 consecutive months now. OMI is making its sixth consecutive appearance, while BCE is repeating for the fifth time in a row.
Please note that these stocks are candidates for further analysis, not recommendations.
• Helmerich & Payne (HP) | growth 42 yrs | yield 2.59% @ $106.26 | 5-yr CAGR 46.91%
HP is an energy-oriented company engaged in contract drilling of oil and gas wells. The company was incorporated under the laws of the State of Delaware on February 3, 1940. HP is trading at a premium of 2.6% above my fair value estimate of $103.50. It is a Dividend Champion with an exceptional growth rate.
• Deere & Company (DE) | growth 11 yrs | yield 2.82% @ $85.11 | 5-yr CAGR 13.43%
Founded in 1837 and headquartered in Moline, Illinois, DE (a.k.a. John Deere), together with its subsidiaries, manufactures and distributes agriculture and turf as well as construction and forestry equipment worldwide. My fair value estimate is $95.50, so DE is trading at a discount of about 12%.
• Qualcomm Inc. (QCOM) | growth 12 yrs | yield 2.28% @ $73.72 | 5-yr CAGR 15.96%
Established in July 1985, QCOM is headquartered in San Diego, CA, and has an employee base of more that 25,000 worldwide. The company develops and delivers innovative digital wireless communications products and services based on its CDMA digital technology. QCOM is trading at a discount of nearly 15% to my fair value estimate of $84.50.
• Sturm Ruger & Company Inc. (RGR) | growth 5 yrs | yield 4.25% @ $49.96 | 3-yr CAGR 85.83%
Incorporated in 1969, RGR is engaged in the design, manufacture, and sale of firearms and precision metal investment casings. The stock trades at a discount of 3.23% to my fair value estimate of $51.57. With a yield of 4.25% and an impressive dividend growth rate, RGR appears to be an attractive stock for investors seeking both income and growth.
HMN is an insurance holding company, which through its subsidiaries, markets and underwrites personal lines of property and casualty and life insurance and retirement annuities in the USA. The stock is trading at a discount of about 4% to my fair value estimate of $29.80.
• BHP Billiton Ltd. (BHP) | growth 11 yrs | yield 3.32% @ $71.09 | 5-yr CAGR 10.63%
BHP is one of the world's largest diversified natural resources companies. It is involved in mineral exploration, production and processing; oil and gas exploration and development; and steel production and merchandising. BHP trades at a discount of 8.31% to my fair value estimate is $77.
• Philip Morris International (PM) | growth 6 yrs | yield 4.58% @ $82.01 | 5-yr CAGR 28.40%
PM is a holding company engaged in the manufacture and sale of tobacco products outside the US. It trades at a discount of about 10% to my fair value estimate of $90. Since its spin off from Altria Group Inc. (MO) in 2008, PM has returned more than $59 billion to its shareholders through share repurchases and dividends.
• Wisconsin Energy. (WEC) | growth 11 yrs | yield 3.58% @ $43.58 | 5-yr CAGR 21.76%
WEC is a holding company with subsidiaries in utility and non-utility businesses. The company serves electric and natural gas customers in Wisconsin and Michigan's Upper Peninsula. My fair value estimate for WEC is $38.65, so it is trading at a premium of more than 11% to fair value.
• Owens & Minor Inc. (OMI) | growth 17 yrs | yield 3.02% @ $33.09 | 5-yr CAGR 12.48%
• Owens & Minor Inc. (OMI) | growth 17 yrs | yield 3.02% @ $33.09 | 5-yr CAGR 12.48%
OMI is a Fortune 500 company providing third-party logistics services to manufacturers and suppliers of healthcare and life-science products. It currently trades at a premium of about 10.4% to my fair value estimate of $29.65.
BCE is Canada's largest communications service provider and serves as the holding company
for Bell Canada. The company provides wireless, data communications, telephone, high-speed Internet, direct-to-home satellite television and voice over IP services. My fair value estimate for BCE is $47, which means BCE trades at a discount of about 4% to fair value.
I have enough cash for a single non-MLP buy. DE, QCOM and PM look interesting here. I'll look at DE and PM first, as I need more holdings in Industrials and Consumer Staples.
Thanks for reading! Do you like any of these stocks at current prices? Any other worth considering?
Thanks for putting this useful list together DivGro!
ReplyDeleteI'm measuring bargains by comparing the current value of stocks on my watchlist to their 52-week low value. DE looks very promising in this perspective.
HP and RGR could be great additions to my watchlist.
Best wishes. DfS
You're welcome, DfS, and thanks for commenting...
DeleteMeasuring bargains the way you do is an interesting idea. I wouldn't base my investment decisions on that exclusively (and I'm not suggesting that's what you're doing). Price does not equal value. But it is a quick way to limit the number of stocks you have to do further research on.
Lately, I've been relying more on the PEG ratio rather than the P/E ratio as a selection filter. The PEG ratio is a dynamic definition of value -- it allows higher P/E ratios for stocks that have faster earnings growth.
Take care!
Nice list there DivGro...I see a few names I'm familiar with and are on our current watch list.
ReplyDeleteIn fact we recently picked up a few shares of DE. Look at HP QCOM for potential upcoming :)
Thanks for stopping by, AFFJ! Congratulations on your DE purchase -- I think its a good one at this level. I'm leaning slightly towards PM at the moment, even though DE has a longer history of dividend increases. But I'm not convinced that I'll go with PM yet... stay tuned to see what my analysis shows...
DeleteCheers
FerdiS
Thanks for sharing this list with us. Regarding your sector balance do you plan to balance individual positions as well so as to not be over-invested in any one particular stock?
ReplyDeleteGood question, DivHut! While I'm still building DivGro, I'm adding new positions in chunks of about $2500 each, except for MLP-type stocks (for which I double the initial investment). So, each non-MLP position has about the same weight.
DeleteOf course, over time, some positions benefit from capital gains and grow relative to other positions on a percentage basis. I ignore that. To me, it is about the initial investment and, specifically, the initial yield-on-cost. If the market value of one of my positions should double to about $5000, I'm still earning dividend income "only" on the number of shares the initial $2500 afforded.
When I stop adding new positions, I'll decide on a new strategy for adding capital to existing positions. Hope this explanation helps!